Following a Different Path – Rolling Forecasts in Manufacturing

Recent economic conditions have elevated interest in rolling forecasts as means of coping with increasing uncertainty and volatility. Proponents believe that a faster and more forward looking process creates value by enabling manufacturers to more effectively respond to change and manage risk.

As manufacturers become larger and more complex, fully realizing this value requires superior integration between finance and operations. Especially between rolling forecast (RF) and sales and operations planning (S&OP) processes. And more specifically, between the financial and operational planning and forecasting models that enable these processes.

Integrated planning models are different in manufacturing than other industries. They are comprised of manufacturing-specific logic such as bills of materials, routings, lead times, inventory parameters and MRP explosions. Such logic enables manufacturers to achieve a number of important objectives:

  • Processes cost less because redundant and non-value activities are eliminated
  • Processes are faster because there are fewer steps and more of them can be done concurrently
  • Forecasts are more accurate because models produce operationally realistic financial projections
  • Scenario planning is more effective because models produce accurate results across a wider spectrum of outlying scenarios
  • Forecasts are more complete because cash flow, inventory and working capital forecasts are a natural by product of planning and forecasting processes
  • Confidence in financial and operational plans is greater because the two are always reconciled

The absence of such integrated models and processes is a key factor contributing to failure of both RF and S&OP processes. From a tactical perspective, poor integration leads to incorrect math and an inability to physically execute RF processes. At a more strategic level, it undermines strategy execution because plans and forecasts are not executable.

Forward thinking executives are recognizing these flaws. What’s more, they understand that separate applications and models are the primary causes of them. They now see RFs and S&OP as part of the same process. What they seek is a more holistic planning approach that integrates these processes.

Technologies that enable such process innovations are now a reality. Through integrated models, they provide incremental capabilities that traditional Corporate Performance Management and S&OP applications can’t provide individually. Capitalizing on these innovations requires a different approach that often goes against accepted norms. But the rewards can be significant for those bold enough to follow a different path.

Tagetik unified Budgeting, Planning and Forecasting

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